Bharti Airtel: 4QFY13 results - on balance, good performance ::Kotak Sec,

Bharti Airtel (BHARTI)
Telecom
4QFY13 results—on balance, good performance. Despite the modest revenue
growth, there were encouraging signs as the India/SA wireless business delivered robust
performance with 5.1% qoq minutes growth, 100 bps OPM expansion and acceleration
in data growth. Marginal decline in RPM can be termed disappointing. We expect Bharti
to benefit from consolidation in the industry that would drive sustained increase in RPM
and profitability. Retain ADD with 12-month forward target price of Rs350; Idea,
despite the recent run-up, remains our preferred pick in the sector.

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4QFY13 a tale of two businesses—Africa disappoints, India business shows improvement
Bharti reported consolidated EBITDA of Rs64.9 bn (+4.9% qoq), marginally below our estimate.
Africa business disappointed with 1.7% sequential decline in revenues and 5.8% decline in
EBITDA. India wireless business performance was strong with 5.1% qoq growth in minutes, 100
bps increase in OPM and acceleration in data growth. We are not too perturbed with the marginal
decline in RPM; we detail our thoughts on the same on the next page. Net profit of Rs5.1 bn
missed our estimate due to (1) forex loss of Rs2 bn and (2) recognition of dividend distribution tax
from Indus and deferred tax charge led to recognition of additional liabilities of Rs1.3 bn.
India wireless business delivers with healthy improvement in key operational metrics
Improved operational performance was visible in (1) strong volume growth of 5.1% in the India
wireless business, (2) acceleration in data revenue growth to 21% backed by strong sub adds, (3)
decline in churn to lowest levels in the recent years (a function of change in industry dynamics),
and (4) expansion in OPM despite not-so-good performance of the South Asia business. We expect
Bharti to protect revenue market share after several quarters of indifferent performance.
Africa drag could continue for some more time
Seasonality aside, Bharti Africa disappointed with decline in revenues and profitability. Immediate
turnaround seems unlikely with continued weakness in key central African Francophone markets.
Nigeria is expected to improve after a decline in revenues. However, EBITDA trajectory has been a
disappointment and expectations of breaking even in Africa has been pushed out further.
Maintain ADD rating—we are positive on the India telecoms story
Strong performance of Bharti and Idea demonstrated early signs of much-needed consolidation in
the Indian wireless sector. We expect solid execution of incumbents to continue in FY2014. We
broadly maintain our estimates for FY2014E-15E. Retain 12-month forward target price of Rs350.
Much as we like Bharti’s India wireless business, Africa will be a drag in FY2014E. Despite strong
outperformance in 2013, Idea continues to be our preferred pick in the sector.